While investors fretted over the slow resumption of the IMF loan programme in the face of falling foreign exchange reserves and a worsening macroeconomic outlook, the Pakistan Stock Exchange (PSX) had another turbulent week.
Yet, the bourse still managed to close the week in the green, thanks to the government’s extraordinary efforts. As the rupee strengthened against the US dollar in Monday’s interbank market, investors breathed a sigh of relief and the market responded with modest gains.
The market remained bearish and dominated trade for the following two days. In anticipation of a further increase in the policy rate in the next monetary policy announcement, investors remained inactive on Tuesday. Moody’s downgraded Pakistan’s domestic and foreign currency credit ratings to Caa3 from Caa1 on Wednesday as a result of a persistent decline in foreign currency reserves and the depreciation of the rupee. This action had a negative impact on investor confidence. The market remained in the red as a result.
On Thursday, investor attitude changed as the government took measures to meet the IMF’s terms, raising hopes that a staff-level deal would soon be reached. The State Bank of Pakistan (SBP) increased its key policy rate by 300 basis points (bps) on Friday to meet requirements for reviving the IMF loan programme, and the increase was met with optimism.
The KSE-100 index fell for most of the week due to the delay in the IMF programme, political uncertainty, and an earlier-than-scheduled monetary policy meeting. Nevertheless, the index rose in response to the State Bank’s 300 basis point rate hike.
According to AHL, the market was able to rise by the end of the week because Pakistan had raised the policy rate, an indication that the country had fulfilled the requirements for the staff-level agreement with the IMF.
Banks (+3.8%) were one of the best-performing industries last week due to positive tax rate news on the advances-to-deposits (ADR) ratio. In the past week, overseas investors have been net purchasers, spending $0.3 million.
Recent events include Moody’s downgrading Pakistan’s credit rating to Caa3 on the grounds of deteriorating liquidity while changing the outlook from negative to stable. The annual rate of inflation in February 2023 was 31.5%, the highest annual rate since February 1965. The value of the Pakistani rupee dropped by another seven percent last week in relation to the US dollar.
Banks (328 points), Other Businesses (169), Exploration & Production (103 points), Electricity (68 points), and Fertilizer (10 points) all made excellent contributions to the economy (61 points).
Technology and communication (-71 points), cement (-46 points), and cigarettes (-27 points) all contributed negatively (27 points).
